Canola Market Outlook: July 4, 2023
Weekly canola market outlook provided by Marlene Boersch of Mercantile Consulting Venture Inc.
Key Points for the Week
Soybeans - USDA pegged US plantings at just 83.5 million acres, down 4 million acres from their March estimate, and well below any pre-report trade estimate. The new number was a shock to the trade.
The crop reduction implied by the lower acreage is ~200 million bu which, all other things equal, would take ‘23/24 ending stocks down to 150 million bu, suggesting crop rationing will be necessary.
Canola - YTD canola disappearance into week 47 of the crop year is 26% above last year’s (drought-reduced) usage (+3.4 million MT) and amounted to 16.7 million MT compared to 13.3 million MT last year.
Canola futures are currently too low compared to soybean values following the latest USDA acreage report, which is why domestic crushers are bidding up for nearby seed.
Re. new crop, we have therefore changed our ‘23/24 canola export projection to 8.25 million MT.
We suggest waiting to sell any remaining old crop canola, but we think that new crop canola bids are worth having up to 60 percent sold.
Oilseed Market Backdrop
Soybeans
Current market situation
The drop in US soybean acreage by USDA last week dominates the soybean discussions by the trade. USDA pegged US plantings at just 83.5 million acres, down 4 million acres from their March estimate, and well below any pre-report trade estimate. The new number was a shock to the trade, especially when there are yield estimates below the USDA’s 52 bu/acre. The crop reduction implied by the lower acreage is ~200 million bu which, all other things equal, would take ‘23/24 ending stocks down to 150 million bu, suggesting crop rationing will be necessary.
At the same time, overall US soybean crop ratings fell another point to 50% Gd/Exc, with the crop development slightly ahead of normal (24% blooming v 20% normal).
CBOT August soybeans closed up 25 cents/bu yesterday (Monday), while new crop November soybeans closed up 10 cents/bu. However, both settled well below the intra-day highs. Soybean oil upheld its upward path rising 1-2 cents/lb ($22-44/MT) with nearby positions the strongest. Soybean oil persists as the strongest part of the soybean complex. Increasing US biodiesel production continues to shift the focus to domestic feedstocks while Asian UCO (used cooking oil) supplies remain limited as European investigations into mis-labelled palm oil/UCO are ongoing.
In S America, Brazilian soybean exports were 13.9 million MT in June compared to 10 million MT last year (+38%). And in China, markets are upholding an upward trend, with both meal and vegetable oils strong and September soymeal trading to fresh contract highs.
Market outlook
The reduced soybean acreage has upset the US soybean balance sheet, especially in view of the regulated and inelastic biofuel demand side. But while the US crush is rigid, Brazilian exports seem to be unstoppable and the trade will continue to debate both US acreage and overall exports. Meanwhile, the US soybean market has become something of an island unto itself: US soybeans will have to stimulate imports and discourage exports to avoid appallingly low stock levels. But in our view, soybeans are not worth such a premium to corn.
Canola Market
Canola usage
The Canadian Grain Commission reported that during week 47 of the crop year, growers delivered 336 thousand MT of canola into primary elevators, exports were a small 79k MT, while the domestic disappearance amounted to 156 thousand MT.
YTD canola disappearance into week 47 of the crop year is 26% above last year’s (drought-reduced) usage (+3.4 million MT) and amounted to 16.7 million MT compared to 13.3 million MT last year.
Visible stocks stayed at 928k MT, with 554 thousand MT in primary elevators, 164 thousand MT in process elevators, 147 thousand MT in Vancouver/ Prince Rupert, and 63 thousand MT in eastern ports.
Current market situation
Canola futures are currently way too low compared to soybean values following the latest USDA acreage report [see above], which is why domestic crushers are bidding up for nearby seed. We think that growers who still have nearby product to sell, should sit and wait to monitor developments for nearby bids.
New crop, in our view, is a good sale at $17.50/bu because it is unlikely that seed will be exported to Europe. In the EU, Canadian canola will face competition by domestic EU production, and by Ukrainian and Australian rapeseed exports. It also is questionable whether China will need to buy as much volume as this current crop year. We have therefore changed our ‘23/24 canola export projection to 8.25 million MT.
At the same time, we think that StatsCan are overestimating new crop plantings. Here is our revised canola balance sheet:
In Europe, Matif rapeseed settled in the middle of the day’s range today with the market finding some balance between the impending EU harvest pressure and reconciling with the sharp gains in the US soybean and vegetable oil markets following the USDA the report. EU rapeseed production estimates are slipping a little but estimates for soybeans and sunflower seed production remain favourable. ICE canola was making further gains as the market grows progressively nervous of dry conditions.
Market outlook
Canola futures are currently undervalued compared to soybeans following the latest USDA acreage report. This should induce domestic crushers to bid up for nearby seed.
Action
We suggest waiting to sell any remaining old crop canola, but we think that new crop canola bids are worth having up to 60 percent sold.
Canola – Topics of Interest
USDA on US Canola
In their latest report last week, the USDA indicated that US farmers planted a record 2.3 million acres of canola, up 3% from lasty ear’s acres. Harvested acreage was pegged at 2.2 million acres, also up 3% from last year.
North Dakota is the leading canola producing state with 1.9 million acres, up 6% from last year. Montana, Washington, and Minnesota host most of the remaining 483k acres. But acres in Montana and Minnesota dropped by 11 and 15%.
Given average yields, US canola production will increase by 1% to 1.76 million MT.
